FRAMEWORK OF FINANCIAL REPORTING AND THE ENVIRONMENT

1. FRAMEWORK OF FINANCIAL REPORTING AND THE ENVIRONMENT PROF JANE. O. M ANDE DEPARTMENT OF ACCOUNTING UNIVERSITY OF JOS, JOS

2. BRIEF – PROF JANE O.M ANDE • Ahmadu Bello University, Zaria • University of Jos, Jos • University of Ghana • HERS South Africa • Haggai Institute, Singapore, Maui, Hawaii, USA • Marthchem Co. kano • Industrial Training Fund, Jos • ANAN, DG NCA, Jos • NUC, CBN, USAID, Carnegie USA • African Accounting and Finance Association (AAFA) WOMEN ENTREPRENEUR AND SOCIETY, 27 OCT. 2012

3. PREAMBLE • The whole world is under challenge – globalisation, climate change, flooding, bribery, corruption, taxation, social media (good and bad), instant for everything. Accountants have added financial globalisation. We do not want ‘sunset clauses’ in our profession.

4. PREAMBLE CONT. • The paper is in four parts: Financial Reporting framework, Financial Environment, Cases and Multiple choice questions.

5. THE CHALLENGE

6. STANDARDIATION – Gives Direction

7. INTRODUCTION • Accounting in its simplest form can be said to be the provision of useful figures to people about their resources. Based on this need, accounting has to be effective and efficient in data handling and recording system. Also there must be the ability to use the system to provide something useful for somebody.

8. USERS OF FINANCIAL REPORTS • Equity investors • Loan creditors • Employees • Government analysts. • Business group, and the • General Public. Etc, etc.

9. NEEDS OF USERS • Some users want forward looking information (Going Concern), while others want backward looking information (Historical Cost). • Different users with different purposes may require different information from the same item in the financial report.

10. Needs of Users Cont. • Different users might require different degrees of depth and complexities from the financial reports.

11. The Major Challenge of Financial Reports • You cannot include all the information required by all users in your financial report. So what are we to do?Nations refusing to adopt IFRSs can best be said to be going through ‘the boiling frog syndrome’. While the introduction and implementation of IFRS is challenging, that of the environment is more.

12. Globalisation and the Environment • Globalisation of financial reports is not extended to globalisation of environmental laws in various countries. Multinationals need to comply with the various rules and laws of each country.

13. The framework and concepts used in IFRSs • The framework for the preparation and presentation of financial statements was replaced with the Conceptual Framework issued by the International Accounting Standards Board (IASB) and International Financial Reporting Interpretations Committee (IFRIC).

14. The framework and concepts used in IFRSs Cont. • It should be noted that it is not a standard or constitution as there are certain instances where individual standards vary from established principles.

15. OBJECTIVE AND SCOPE • It is the intention of this paper to discuss the conceptual framework of financial reporting by reviewing the need for conceptual framework and global standards, the benefits to be derived from such standardization, scope of the framework, and implication of the environment on financial reporting.

16. What is Conceptual Framework all about? • It is the set out of concepts that underlie the preparation and presentation of financial statements for external users to enhance consistency across standards and provide benchmark for judgements. Preparers use conceptual framework to develop accounting policies in the absence of specific standard or interpretation.

17. Purpose of Conceptual Framework? • To assist in promoting harmonization of regulations, accounting standards and procedures relating to the presentation of financial statements by providing a basis for reducing the number of alternative treatments permitted by IFRSs; • To assist national standard-setting bodies in developing national standards;

18. Purpose of Conceptual Framework? • To assist preparers of financial statements in applying IFRSs and in dealing with topics that are yet to form the subject of an IFRSs; • To assist users of financial statements in interpreting the information contained in financial statements prepared in compliance with IFRSs;

19. Purpose of Conceptual Framework Cont. • To assist auditors in forming an opinion on whether financial statements comply with IFRSs; • To assist auditors in forming an opinion on whether financial statements comply with IFRSs;

20. Purpose of Conceptual Framework Cont. • To assist the Board in the development of future IFRSs and in its review of existing IFRSs; and • To provide those who are interested in the work of the International Accounting Standards Board IASB with information about its approach to the formulation of IFRSs.

21. Why do we need global standards? • The world economies are interdependent. • The financial crisis in many countries. (Period of mattressing, window dressing etc) • Our Small and Medium Scale Enterprises are now integrated into the world economy. • Capital markets are now global.

22. Why do we need global standards? Cont. • Accounting and auditing services needed to be improved upon to avoid sudden corporate failures. • The production of high quality information will facilitate the allocation of global capital. • Our standard setters had work plan for the millennium years.

23. What Are The General Benefits of Global Standards? • Efficient allocation of capital globally. • Attracts investment through transparency and integrity of reporting • Reduces the cost of capital in investment • Increased worldwide investment as barriers across countries is broken

24. What Are The General Benefits of Global Standards? Cont. • Cost reduction and increased efficiency • Facilitates standardised information systems • Eliminates waste of time and resources in carrying out reconciliations • Efficiencies in audit work • Increased education and training for professionals.

25. Benefits of IFRS to Nigeria • Helping propel foreign direct investments in Nigerian quoted companies operating in the country. • Encouraging full disclosures measures meant to further entrench sound corporate governance in financial reporting.

26. Benefits of IFRS to Nigeria • Lower transaction costs for preparers of financial reports since they would be able to comply with a single set of accounting standards instead of multiple sets. • Protection of Auditors. • See statistics of ppi.

27. Benefits of IFRS to Nigeria Cont. • The long term value of holding up the global universal standards of the accounting profession. The guarantee the production of quality financial reports. • The introduction IFRS is expected to help disclose as much as possible critical accounting areas that will help the “going concern” aspects of a firm.

28. Total Investment Sector AAFA CONFERENCE SEPTEMBER 5-7, 2012, ABUJA, NIGERIA Source: http://ppi.worldbank.org/explore/ppi_exploreCountry.aspx?count...

29. Benefits of Standardization ANAN FRC ACT WORKSHOP FEB 14-16, 2012 Inaugural lecture April 30, 2010

30. GROWTH IN BUSINESS Global financial standards help businesses to grow. ANAN FRC ACT WORKSHOP FEB 14-16, 2012

31. Benefits of International Financial Reporting

32. TRADITIONAL WORK STATION • DOCUMENTS • DOCUMENTS • DOCUMENTS

33. DOCUMENTS SCANNED INTO THE COMPUTER

34. CORPORATE GOVERNANCE – ALL INCLUSIVE

35. Areas Covered by Conceptual Framework? 1. The objective of financial reporting; 2. The qualitative characteristics of useful financial information; 3. The definition, recognition and measurement of the elements from which financial statements are constructed; and 4. The concepts of capital and capital maintenance.

36. Objective of Financial Reporting • The objective of financial reports is to provide information about the financial position (Balance sheet), performance (income statement), and changes in financial position (cash flow statement) of the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions providing resources to the entity.

37. Some Uses of Financial Reports • Buying, selling, or holding equity and debt instruments depends on the expected returns on investments like expected dividends, market price increases and principal and interest payments. • On the other side are lenders providing credits or those settling loans look out for principal and interest payments.

38. Some Uses of Financial Reports Cont. • Financial reports also reveal the results of management’s stewardship of the resources entrusted to them. The information supplied by management along with the notes to the accounts assist users in predicting the future cash flow of the entity.

39. Information Needs of Users of Financial Reports • Assets, Liabilities, Equity, Income and Expenses, including gains and losses, contributions by and to the owners, the entity cash flow and how efficient and effective the entity’s management and governing board have discharged their duties in the use of the entity’s resources. For instance how did management and the Board protect the entity from competition and change in technology?

40. Characteristics of Qualitative Information • Relevance • Faithful Representation • Timeliness • Verifiable • Understandable • Comparable • Note Cost Constraints: Benefits should outweigh cost

41. VARIOUS WAYS TO COMMUNICATE

42. VERBAL COMMUNICATIONS

43. IFRS Has This Underlying Assumption • Going Concern: An entity will continue for the foreseeable future under the Historical Cost paradigm as well as under the Capital maintenance in Units of Constant purchasing power paradigm. • An entity is assumed to be in existence without the intention to liquidate or curtail its operations.

44. GOING CONCERN UNDER THREAT IN THE FAMILY -ENTITY

45. THREAT TO GOING CONCERN – INTENSIVE CARE UNIT ANAN FRC ACT WORKSHOP FEB 14-16, 2012

46. Example of Threat to Going Concern

47. Classifications Under the Financial Position • Asset • Liability • Equity • Performance: Income - Expenses

48. Capital Maintenance Adjustments • Financial Capital Maintenance • Physical Capital Maintenance

49. At what point should elements in financial statements be recognised? • See definitions of Asset, Liability, Equity, Income and Expenses. • Also, the Concept of Materiality, qualitative characteristics, probability of future economic benefit and reliability of measurement should affect recognition of assets, liabilities, income and expenses.

50. Can you purchase an item without knowing you did? • In many entities using information technology today, it is becoming normal to recognise income on accrual basis without the knowledge of the parties involved. However, caution and restrain should be exercised as the buyer has options to exercise his/her right.